On April 29, 2024, Yili Co., Ltd. announced the 2023 annual report, the 2024 first quarter report, and a plan to repurchase the company's shares through centralized bidding transactions.
Key points of investment
Improvements on the profit side can be expected, and the repurchase plan shows confidence in development
The company's total revenue for 2023/2023Q4/2024Q1 respectively
1261.79/287.75/325.77 billion yuan, +2%/-3% year-on-year, respectively. 2024Q1 revenue side is under pressure, mainly due to high base/weak consumer demand after the Spring Festival, resulting in supply-demand conflicts between oversupply upstream and insufficient demand recovery. Currently, the company is actively adjusting the shipping pace and procurement and digestion of upstream milk sources. With the gradual recovery of channels, it is expected to drive steady growth in 2024 annual results. The company's 2023/2023Q4/2024Q1 net profit was RMB 104.29/10.48/5.923 billion yuan, respectively, +11%/-23%/+64% year-on-year respectively. The increase in 2024Q1 profit was mainly due to investment income from the transfer of shares in the holding subsidiary. In 2024, the company plans to achieve total revenue of 130 billion yuan and total profit of 14.7 billion yuan. On the profit side, the gross margin of the 2023/2024Q1 company was 32.58%/35.79%, respectively, with an increase of 0.3 pct/2pcts respectively. The gross margin showed an upward trend, mainly due to improved product structure and falling raw milk prices. As market demand recovers, it is expected that there is still room for improvement in gross margin. The 2023/2024Q1 sales rate is 17.89%/18.45%, which is -1 pct/+1pct, respectively. In order to ensure the smooth progress of liquid milk adjustments, the company plans to increase marketing investment, and the sales rate is expected to increase slightly in 2024. The 2023/2024Q1 management rate was 4.08%/4.47%, -0.3pct/+0.3pct, respectively. Overall, the company's net interest rates for 2023/2024Q1 were 8.18%/18.34%, respectively, with an increase of 1 pct/7pcts respectively. Currently, the business is recovering, and we expect continued improvement on the profit side. In addition, the company proposed a repurchase plan. The estimated number of shares to be repurchased is 238.777-477.55 million shares, accounting for 0.38%-0.75% of the total share capital; the estimated repurchase amount is 1-2 billion yuan, and the maximum repurchase price is 41.88 yuan/share. This buyback is used to cancel and reduce registered capital, which is expected to enhance market confidence and increase investor returns. In terms of dividends, the company plans to distribute a cash dividend of 12 yuan for every 10 shares to all shareholders, with a dividend rate of 73.25%.
The basic market is expected to resume growth and diversify the business
By product, 1) Channel sorting in the liquid milk sector is in progress, waiting for growth to resume in the second half of the year. In 2023, the company's liquid milk revenue was 85.540 billion yuan (up 1% from the same period), sales volume was 9.6947 million tons (2% increase), and the tonnage price was 0.88 million yuan/ton (same decrease of 1%). 2024Q1 revenue was 20.061 billion yuan (same decrease of 7%), mainly due to the company actively adjusting the sales pace for the long-term healthy development of the channel. It is expected that after completing the sorting of liquid milk channels in the first half of the year, there will be a steady recovery in the second half of the year. 2) The milk powder and dairy products sector is basically flat and superior to the industry. In 2023, the revenue of milk powder and dairy products was $27.598 billion (up 5%), sales volume was 355,400 tons (3% increase), and the tonnage price was 77,600 yuan/ton (up 2%). The company develops functional products for adult milk powder. Currently, the retail market share of infant formula is 16.2%, an increase of 2 pcts. As industry concentration increases, the company is expected to gain more market share as a leading brand. Furthermore, the ToB field of the company's cheese business is developing rapidly, and there is plenty of room for growth in the long term. 3) There is still room for improvement in the penetration rate and structure of cold drink products, and it is expected to maintain steady growth. In 2023, the company's revenue for cold drink products was 10.688 billion yuan (up 12%), sales volume was 667,200 tons (up 12%), and the tonnage price was 16,000 yuan/ton (0.1% increase). In the future, the company plans to seize the growth potential of cold drink products in the third- and fourth-tier markets and young consumer groups through various measures such as strengthening the brand matrix/channel building/new product launch, and spawn new growth space.
The domestic market is developing steadily and actively seeking international market growth points. In 2023, the company's revenue in North China/South China/Central China/East China/Other regions was 339.40/315.39/245.36/193.11/15.134 billion yuan, respectively, +2%/+6%/+8%/+5%, respectively. With the exception of East China, all domestic regions achieved steady growth in performance. At the same time, the company actively lays out the international market, enriches its global milk source layout through cooperation with Australia, and has made significant progress in European milk sources.
By sales model, the company's distribution/direct operating revenue in 2023 was 1207.47/37.14 billion yuan respectively, up 3%/1% respectively.
Profit forecasting
The company's brand strength is still stable, and the channel/product moat is deep. Revenue is expected to improve quarterly as the economy recovers. According to the annual report and the first quarter report, EPS is expected to be 1.86/2.17/2.49 yuan respectively in 2024-2026, and the current stock price corresponding to PE is 15/13/12 times, respectively, maintaining a “buy” investment rating.
Risk warning
Downside macroeconomic risks, market incentives related to buyback fall short of expectations, further intensification of competition, rising raw material costs, and falling short of expectations in core products.